Question
QUESTION: Which one best describes the use of positive leverage? A. For an all cash deal, you are making an equity contributing of $1M to
QUESTION: Which one best describes the use of positive leverage?
A. For an all cash deal, you are making an equity contributing of $1M to buy a $1M property making a 10% return. However, if you able to obtain a loan of $800K (at reasonable interest rate terms) then your equity contribution is only $200K and making a higher return of only 10%.
B. For an all cash deal, you are making an equity contributing of $1M to buy a $1M property making a 10% return. However, if you able to obtain a loan of $800K (at reasonable interest rate terms) then your equity contribution is only $200K and making a higher return of only 12%.
C. For an all cash deal, you are making an equity contributing of $1M to buy a $1M property making a 10% return. However, if you able to obtain a loan of $800K (at competitive low interest rate terms) then your equity contribution is only $200K and making a higher return of 18%.
D. For an all cash deal, you are making an equity contributing of $1M to buy a $1M property making a 10% return. However, if you able to obtain a loan of $800K (at high interest rate terms) then your equity contribution is only $200K and making a lower return of 9%
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Financial Management Core Concepts
Authors: Ray Brooks, Raymond Brooks
1st Edition
0321155173, 9780321155177
